BNPL – Spiral to Oblivion is Real

BNPL players are in serious trouble with share prices in free fall, the risk of defaults and/or failure is real – red lights are flashing!

Australian BNPL sector once touted as THE global leader, with a March 2021 market cap of A$47.6 billion. Since then, it’s been downhill - with A$44 billion vanishing!!

USA Affirm has seen its stock drop 90% and Klarna has yet to sign off on US$1 billion fund raise with US$15 billion reduction in value - current stock declines wont help!

Australia has already seen failures Bizpay and PayitLater (see below) more will happen quickly!

Trust is a massive issue in any lending and payments space, this will now be tested for BNPL apps along with key issues of:

REGULATION – the 8-year regulation arbitrage stopped in its tracks!

Australia, UK, Singapore, Ireland, Sweden and New Zealand have all indicated regulation will happen – the USA dithers as usual.

The new Australian Government has said BNPL is credit!

In other words, its lending to consumers – the 2009 loophole will be closed and all the rubbish talked by BNPL aps of ‘platforms’ and ‘new’ technology is just that.

INCREASING INTEREST RATES – the rapid rise in funding costs is one the biggest risks for BNPL apps. This very high-volume low margin lending niche needs to fund the gap between paying merchants and being paid in 14-42 days.

At net zero interest rates BNPL has no problems, however these rates are behind us and now facing 6-8% interest rates within months funding is now a key issue.

Klarna is a bank in Sweden (most others are not) gets advantage in ratings. But Klarna funding costs up 149 bps in 9 months (remember total revenue line is 425/445 bps)- it’s just started!

COMPETITION – these noisy apps created the myth that BNPL was a new dimension in payments. This is totally false, BNPL has been around for 300 years in Europe and 250 years in USA.

The last great BNPL play was in the 1980s, but interest rates and technology ‘killed’ the niche product – fast forward to 2005 Klarna in Sweden and Afterpay Holland (not to be confused with Afterpay Au) launched a new twist of BNPL on apps. Affirm followed in US in 2012, Afterpay Au and ZIP in 2014, 2015 respectively.

Unfortunately for BNPL apps all this noise has attracted very large competitors and one key to long term success in payments is scale, the other is ubiquity and BNPL has neither.

Large payment companies have belatedly followed – Visa and Mastercard, slow off the mark now have virtual debit cards with 80 bps interchange which allows bank partners to make some money.

PayPal joined the party in August 2020, after testing Pay-in-Four in several markets. It is now the biggest player in key markets and its growth rate exceeds any start-up at the same time point – see US chart.

US chart shows PayPal vs Afterpay market entries at the same point in time - note the huge difference between PayPal and Afterpay.

Apple is the latest large player to enter BNPL – its has out Finteched the Fintechs, its wallet already sits within every iPhone from Model 6 upwards. This is much more coinvent than downloading some app, simply click to activate.

INFLATION – consumers are forced to cut back on non-essentials.

What’s BNPL, easy use lending for non-essentials - cloths, cosmetics, shoes etc etc

NO PROFITS – BNPL apps global sales 2021 US$145 billion – however the sector lost close to US$100 billion of investors’ money last year!?

‘Any hope of profitability depends on overextended consumers somehow making their payments and continuing to mash the buy button.’

NYT Professor Scott Galloway

BAD DEBTS – BNPL dirty secret of massive bad debts has been exposed and will not go away any time soon. BNPL apps have bad debts 14 times higher than leading banks credit cards and five times higher than the US credit card industry.

The peak US credit card losses in 2009/10 was 10.8% - today 2.62% of receivables

Afterpay 13.9% of receivables

Zip 9.7%?

Klarna 8.5%,

Affirm - 6.5%?

BNPL have many false and misleading measures which are rarely challenged. This includes customer numbers, activity rates, downloads as if that means anything, net transaction ratio is a real doozy.

Perhaps the biggest stretch is bad debts – BNPL have taken eCommerce definition Gross Merchandise Value (GMV) and applied it to lending. This is deliberate to confuse and make bad debts appear much smaller.?

GMV simply cannot work as a comparison tool for several reasons – one example, a BNPL $100 transaction requires $25 paid up front, so the debt is $75 split over 3 transactions. The risk and possible credit write off is $75 not $100 – so by using $100 BNPL apps falsely show bad debts a 25% falsehood to begin with.

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Zip deserted by investors, funds in market mauling

THE AUSTRALIAN BRIDGET CARTER DATAROOM EDITOR JUNE 14, 2022

It seems it is not just equity investors that are deserting Zip.Co – special situation funds have been giving the buy now, pay later provider the cold shoulder as well.

Amid the sharp market decline on Tuesday, Zip.Co was one of the biggest casualties, with its share price closing 15.9 per cent lower at 53c, taking its market value to $364.6m.

It’s a far cry from the $4.8bn that the company was worth last year when its shares traded at $7.

Sources say that special situation funds looked at the business about four months ago and passed on the opportunity for a deal.

Zip’s market value is now half the level of debt used for funding the business, excluding receivables.

Total borrowings for the loss-making company in December were at $2.4bn, with its net assets at $1.2bn. The company, led by co-founder Larry Diamond, has about $400m of debt that needs to be refinanced in about two years, sources say.

Concerns about the company’s future are growing.

It is yet to finalise its merger transaction with Sezzle.

Zip is being hit with higher funding costs, a slowing economy, looming regulation and competition in the BNPL space from Apple.

The general theme of the market sell-off on Tuesday was that any company that remains cash flow-negative is being heavily sold off in the expectation that they will not survive in the high interest rate environment.

Investors in both the US and Australia are betting on a recession thanks to rising costs in the aftermath of the global pandemic.

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Small businesses claim buy now, pay later company Pay it Later has left them in financial ruin

By?Nat Wallace|

?An Australian buy now, pay later company appears likely to collapse, as it owes millions to desperate small business owners across Australia.

Pay It Later, which started operating in 2018, signed up nearly 200 merchants.

One Queensland business owner claims he's owed over $800,000.

"I just can't believe this can happen in Australia," Vasile Opris said.

The company, owned jointly by Brisbane-based financial expert Donald Graham (Businessnav) and Startup Circle CEO Thomas Hegarty, is still advertising on social media.

It's unclear how much money Pay It Later has taken from customers and not passed on to businesses, but?A Current Affair?is aware of over $2 million that has not been paid.

In a heartbreaking development, the directors have started court action against each other, with Mr Hegarty applying to the Federal Court to have Pay It Later wound up.

We confronted Mr Hegarty outside his Milson's Point apartment to ask if he wanted to walk away from the company, but he refused to comment, only saying it was a legal matter.

A later statement issued by Mr Hegarty blames Mr Graham for the current situation.

Mr Graham responded to?A Current Affair's?enquiries via lawyers, who confirmed he was trying to gain control of the company and its finances, and blames Mr Hegarty for the situation.

With both men blaming each other, who is right will be for a court to decide.

Mr Opris, who owns X Force Tactical, said Pay It Later had left a trail of destruction.

"As I was adding up, I got to $200,000, $300,000 and I started sweating a little, but when I got to the full amount I was a bit numb, to say the least," Mr Opris said.

He said he'd made $850,000 in sales and never saw a cent.

"When I started looking through my accounts I found out they didn't pay me a dollar in the first year, so they took $200,000 in payments and didn't pay me a single dollar," Mr Opris said.

"I even said to my staff, 'We need to make some sales, I don't know what's happening, I don't have enough money to pay you guys'."

Colin Corcoran, who owns Command Elite Hobbies, said it appears Pay It Later preyed on the booming gel ball industry, which had struggled to get a buy now, pay later provider.

"We all signed up," said Mr Corcoran, who is owed $170,000.

"I don't have a name low enough for Pay It Later."

Mr Corcoran said 40 per cent of his sales went through Pay It Later and not having that money has seen him let go of staff.

"It's absolutely devastating," Mr Corcoran said.

"I've put my blood sweat and tears into this joint, I'm extremely proud of it."

Even last month, Pay It Later thanked him via email for his "understanding" and promised "it would make some payment plan".

"Thomas and Donald I know you guys are family people, so I'm speaking to you from a family perspective. Do the right thing," Mr Corcoran appealed.

Both owners continue to operate other businesses, with Mr Hegarty using a NSW Government-owned building as his office.

Tara Low, who operates SnackEzy, which provides low-cost bulk goods to many disadvantaged and remote communities, got stung for $34,000.

The mother said it was "near impossible" to contact Pay It Later and she constantly had to chase the owners for money.

"We have Afterpay, Laybuy, Zip Pay, Humm, Klarna, PayPal ... never a problem, but the problem with Pay It Later is that it turned into 'pay it never'," Ms Low said.

"I don't know where the money's going but it's certainly not coming to us."

Ms Low said she was hoping the police and ASIC would intervene if it was revealed more money was lost in the court process.

Sydney buy now pay later provider BizPay cuts 30 per cent of workforce

The buy now, pay later provider is saying goodbye to a large part of their workforce but continues to seek out $25 million in funding.

?NEWS LIMITED Sarah Sharples?May 4, 2022

A buy now, pay later provider with offices in Sydney has made 30 per cent of its workforce redundant blaming market conditions for the huge cut to staffing.

Yet, the company called BizPay is currently in the process of trying to raise $25 million in funding and has partially completed it.

It has already attracted $45 million in funding since its launch in late 2019, according to reports.

Impacted staff are required to finish up at the company by Friday, although the company did not reveal how many people were laid off.

BizPay is a form of BNPL used by other businesses to pay invoices for providers such as lawyers, accountants or advisers over four monthly instalments and it charges companies a fee.

Its co-founder and chief executive David Price said the job cuts were a “strategic decision”.

“Due to the uncertainty in the global markets, particularly the tech sector, and current market conditions, we’ve made the strategic decision to streamline operations and our workforce to support BizPay’s next growth phase,” he told news.com.au.

He added that new automated processes had improved efficiency requiring a “leaner and more agile workforce” to improve its competitiveness in the space.

“Unfortunately, as part of this process, we’ve had to make some reductions to our staff level to adapt to these changes,” he said.

Earlier this year, experts?predicted potential “carnage”?for the buy now, pay later sector as providers burn through cash, bad debts balloon and customers retreat from using the service – a model which they say isn’t sustainable.

In April, Australian buy now pay later tech giant Afterpay posted a staggering mid-year loss haemorrhaging $345.5 million over the six months to December 31, 2021.

It was a considerable decline from its previous half-yearly results, where it shed $79.2 million in the first half of 2021, meaning the?company’s losses ballooned?by 336 per cent.

Meanwhile, shares in Zip Co have dropped by a whopping 72 per cent this year.

BizPay had previously raised the possibility of floating on the Australian stock market in an initial public offering (IPO) and in April last year it was estimated to achieve a market capitalisation of $400 million, the?Australian Financial Review?reported.

Mr Price said the it was working on the timing and size of its current raise.

“In terms of our capital raise, we are working closely with our investment bankers on the timings and size of the raise,” he said.

“We’ve successfully raised a portion of funds; however, it is a challenging market, especially for fintechs. We believe the measures that we have put in place and the automation capabilities will be well received by the market and support us in scaling the business.”

Back in March, BizPay said it had achieved significant growth with more than 10 times increase in revenue over the last year, reported?Retail Biz.

“The payments ecosystem is accelerating at lightning speed, and we’re excited to tap into this growth in 2022 …”, Mr Price told the publication.

“By offering a unique and disruptive product to an untapped market, we’ve set up the business for success both locally and globally. With an innovative AI-led approach, supported by a talented team we’re keen to keep delivering outstanding results on our way to IPO.”